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Toughened Big-Bank Merger Reviews Pose Threat to Upstart Rivals

June 3, 2022, 9:30 AM

Putting extra scrutiny on big bank mergers involving more than $100 billion in assets has the potential to increase industry concentration and derail Biden administration plans to promote competition, banks and others told the FDIC.

The Federal Deposit Insurance Corp. sent out a comprehensive information request in March on potential changes to its merger review process. The effort—along with a Justice Department review of its bank merger approval process—is an outgrowth of President Joe Biden’s 2021 executive order calling for federal agencies to increase competition in the U.S. economy.

Questions about whether bank deals involving at least $100 billion in assets should be presumably rejected based on “systemic risk” concerns dominated the comment letters submitted by June 1. Banks and others also voiced concern about the potential for the Consumer Financial Protection Bureau to take an expanded role in reviewing deals.

Setting a denial presumption would place the burden of proof on banks to justify that a large merger wouldn’t pose risks to the broader U.S. financial system. But such an approach could make it harder for regional and other mid-level banks to achieve the scale necessary to compete with the biggest U.S. banks—the exact opposite of what the FDIC is trying to achieve.

“The largest banks would have fewer challenges to their dominant position in markets across the country, and they would hold a significant competitive advantage,” former FDIC Chairman Sheila Bair and former FDIC Vice Chairman Thomas Hoenig said in a joint letter.

Bair led the FDIC during the 2008 financial crisis and has long advocated jacking up capital standards on the biggest banks to prevent a repeat of the government bailouts that marked that period. Hoenig has also advocated for increased capital for the biggest banks.


Critics of the FDIC’s current merger review process say it’s largely become a “check-the-box” exercise as the agency examines details of proposed deals, University of Michigan Ross School of Business professor Jeremy Kress, a former Federal Reserve attorney, said in a comment letter.

“This permissive approach to bank consolidation is not what Congress intended” when it gave regulators the responsibility to review bank deals under the Bank Holding Company Act and the Bank Merger Act, Kress said.

Federal banking regulators haven’t blocked a merger since 2003, Kress noted.

Rather than presuming a deal should go through, the FDIC and other regulators should require banks to make a case for why their deal should go through, he said.

That’s particularly true for deals above $100 billion, which the FDIC could define as a “systemic risk.”

The FDIC primarily supervises and reviews mergers involving smaller and mid-size banks. The Fed and the Office of the Comptroller of the Currency have oversight over bank holding companies and larger national banks, respectively.

But the FDIC also would be responsible for taking apart a newly formed big bank should it fail. That’s why the agency should weigh in on all bank mergers regardless of which regulator takes the lead, the Center for American Progress, a progressive think tank, said in a comment letter.

‘Perverse Impact’

Large regional banks with a simple business model can offer an alternative to the largest globally systemically important banks (GSIBs) operating in the US, like JPMorgan Chase & Co. and Bank of America Corp.

But having a presumption that any bank merger above $100 billion should be denied would “potentially have a chilling effect” on mid-size bank M&A, Piper Sandler Managing Director Thomas W. Killian said in a letter to the FDIC.

Banks at or around that $100 million threshold would most likely decide against doing deals, making it harder for them to compete against the global behemoths, he said.

“The perverse impact of this would be to further concentrate large bank M&A among the eight existing GSIBs in the U.S. or invite foreign GSIBs to pursue more growth in the U.S.,” Killian said.

Bair and others questioned whether a $100 billion bank would represent a true systemic risk. A $100 billion bank would account for less than 0.3% of total U.S. banking assets, so even deal involving two such banks would hardly pose a threat, Bair and Hoenig said in their letter.

Aside from the competition concerns, increasing the focus on mergers above $100 billion would go against Congress’ intent, the industry lobbying group Bank Policy Institute said in a comment letter.

The Dodd-Frank Act and other banking laws already set thresholds for regulators to reject a proposed merger, including deals where a bank would end up holding 10% or more of total U.S. bank deposits.

“A radically different per se rule (or a rule that has the same practical impact) would be a repudiation of Congress’s considered judgment about the appropriate cap on bank mergers,” Gregg Rozansky, BPI’s senior associate general counsel, and Brent Tjarks, the executive director of the Mid-Size Bank Coalition of America, said in the letter.

CFPB Role?

Supporters of tougher merger reviews also called for an enhanced role for the CFPB in approving or denying deals.

The FDIC questioned whether the CFPB should be consulted on the “convenience and needs” evaluation of proposed mergers, specifically with respect to compliance with consumer protection laws.

Although the CFPB has no formal role in the bank merger review process, the Center for American Progress said it should be consulted on any deal. Kress went further, arguing that the CFPB should be able “block a bank merger on public interest grounds.”

CFPB Director Rohit Chopra, a former Federal Trade Commission member, has made increasing financial services competition a key goal of his CFPB tenure. He also pressed for an examination of merger review policies as a member of the FDIC’s board of directors, resulting in a battle that saw former FDIC Chairman Jelena McWilliams, a Trump appointee, resign.

Even though the CFPB director sits on the FDIC board, the American Bankers Association, in its comment letter, opposed giving the agency a separate role in reviewing mergers.

Doing so would “be superfluous to existing considerations, inconsistent with the Bank Merger Act, and beyond the scope of the CFPB’s own authorizing legislation,” ABA Chief Economist Sayee Srinivasan and Policy Counsel Hu A. Benton said.

To contact the reporter on this story: Evan Weinberger in New York at

To contact the editor responsible for this story: Michael Ferullo at, Melissa B. Robinson at